A Sign of Hope for Online Ad Prices

Posted by: Rob Hof on July 23, 2009

Prices for display ads have been dropping for some time. The suspects are easy to identify: the poor economy, which is not only reducing ad budgets but also driving marketers to more direct-response search ads, and the ever-growing glut of inventory on the infinite Web. Dropping ad prices are one reason Yahoo reported disappointing earnings on July 21 and CEO Carol Bartz saw no firm sign of a turnaround.

But there’s at least one sign that things may be improving. PubMatic, which helps online publishers run more lucrative ads, says in a new report out Thursday morning that it’s seeing a steady increase in the price of display ad space sold through ad networks and exchanges. They’ve risen 47% since the end of January (35% since the end of 2008, January being a weak month for ad spending). Pricing has risen every month since the start of the year.

What’s going on? PubMatic CEO Rajeev Goel told me in an email:

There are two fundamental trends driving this rise in pricing:

1) Supply and Demand. On the supply side, we have seen a drop in the number of web services that rely on advertising revenue as their business models, as this model has fallen out of favor. Even some traditional businesses such as newspapers have been shrinking with respect to online presence. On the demand side, recent reports from Outsell and Forrester highlighted that even though total ad spending (traditional and online) has dropped due to the recession, online advertising is growing in terms of both market share and total spend. This includes display as well as search.

2) Innovation in the 2nd channel. In the last 1-2 years, we have seen a tremendous amount of innovation in the ecosystem around the 2nd channel (unsold ad inventory, or what some call non-guaranteed, generally sold on a cost-per-click or cost-per-acquisition basis, unlike premium ad space generally sold by the impression for branding purposes). Media exchanges, data exchanges, deep targeting ad networks, ad network optimizers, etc. have been growing in number and scale. As a result, inefficiency in the market is being eliminated and there is more and more data used for ad targeting. This is increasing pricing in the space.

It’s best not to read too much into this, since it’s based largely on U.S. sites, and only inventory sold through ad networks, not the premium-priced display ads sold directly by publishers’ sales force. Also, I’ve found that studies from various firms tend to vary widely. But any sign of improvement has to cheer beleaguered online publishers.

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Reader Comments

Nodir Ruzmatov

July 23, 2009 06:47 AM

I think Companies are moving from offline Ad to Online, and this is increasing the price of Online Ads.
p.s Online Ad is more targeted and effective compared to traditional offline ads!!? No?

Mark Mannino

July 27, 2009 05:19 PM

I have to disagree with Rajeev's statement that it's Supply/Demand driven. There is no evidence that there is a decrease in supply for display advertising, if anything, there's a supply glut. ThinkEquity's report on non-premium display shows continued growth in non-premium display impressions through 2013.

See more detailed analysis of display pricing here - http://bit.ly/18PUDT

Mark Mannino

July 27, 2009 08:31 PM

Spoke with Rajeev. His quote meant the rate of supply growth has slowed, not that supply has decreased. That makes sense. Particularly for the reasons he states above

Scott Portugal

August 5, 2009 12:16 PM

I agree with Rajeev that 2nd channel innovation is a contributing factor, although I think it's less about yield & delivery optimizers and more about audience data. Exchange optimization solutions help agencies & advertisers find the right audience and the most cost-effective price (thus the push towards agency-owned exchanges), which will eliminate the mark-up they face when dealing with networks today. This should LOWER prices, but ultimately deliver incremental yield lift to publishers.

I believe what's raising prices is a better understanding of the value of the mid-tail. The value of uniques in and around niche, enthusiast content is better understood, and tools now exist to help agencies reach that audience without relying on semi-blind networks. This allows publishers to see eCPM lift directly as opposed to having it cannibalized by remnant players.

Just my $.02

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